Risk Management

Under Patriot Act, Feds Could Bug Boards

The new amendments will enable prosecutors to use electronic surveillance of executives suspected to be involved in such misdeeds as price fixing a...
Marie LeoneMarch 8, 2006

When President Bush signs the Patriot Act amendments into law later this week, the civil liberties of people targeted in terrorism investigations will be strengthened. That’s not the case, however, for corporate executives and directors under investigation for antitrust crimes. For them, the amendments will enable the government to wiretap phone conversations and bug boardrooms and offices if there’s probable cause that antitrust violations are being committed.

Up until now, the Department of Justice has used wiretaps and bugs mainly to gather evidence against suspected mobsters, drug runners, terrorists, and other “blue collar” criminals, as prosecutors like to refer to them. But the USA Patriot Improvement and Reauthorization Act, which was narrowly passed by the House Tuesday night after sailing through the Senate last week, should change all that.

The act will now allow government prosecutors to use electronic surveillance of alleged white-collar criminals involved in price fixing, bid rigging, conspiracy among competitors to divide up territories and customers, and other suspected crimes. The antitrust wiretap provision is contained in Section 113 of the Patriot Act amendments. In the section, Congress adds antitrust crimes to the list of misdeeds in U.S. legal code, that could warrant wiretaps and bugs.

Under the amendments, the DOJ could thus ask a federal judge for permission to wiretap or bug suspected violators of conspiratorial antitrust crimes like price fixing. But corporate directors and officers are likely to be more troubled by prosecutors’ new ability to request wiretaps for such milder suspected antitrust violations as setting up trade monopolies or distribution arrangements that restrain commerce.

The new wiretap power for lesser antitrust crimes might not end up being all that threatening, however. The DOJ’s Antitrust Division generally prosecutes the lesser infractions as civil complaints, says Tyler Baker, who heads the antitrust litigation practice for Fenwick and West, a Mountain View, California, law firm. And it’s only criminal complaints that would warrant electronic surveillance.

Further, federal judges have traditionally granted wiretap and bugging warrants for only “hard-core or cartel-type” crimes, not civil infractions, he says. If that history holds true to form, directors or officers that appear to be trying to monopolize a market or manipulate distributors, for instance, won’t have to check their phones and boardrooms for bugs.

At the same time, the new wiretapping of suspected hard-core antitrust criminals permitted under the act could spell intellectual property problems for corporations, thinks Mark Racanelli, a white-collar defense attorney with the New York office of O’Melveny and Myers. Trade secrets might be picked up on tape inadvertently and then made part of the public record in connection with an indictment.

That could happen when a legitimate business discussion –such as talk about a planned merger or the introduction of a new product—provides context for the crime or is intertwined with a conversation about illegal activities, explains Racanelli.

But keeping corporate information under wraps may not be possible. That’s because tapes from wiretaps or bugs are usually considered critical to a case, adds Racanelli, a former lawyer for the federal government. “From a prosecutor’s perspective, it is better to have a tape than just a witness. Tapes are more powerful evidence,” he notes.

Defense teams might also want to use the tapes as evidence, according to Racanelli, especially if they’re planning to argue that the defendant was under duress or coerced into doing something illegal. Tapes are also helpful to illustrate entrapment, adds the defense attorney.

To avoid such possibly unintended consequences of the new law, attorneys say, distinctions must be made. To be sure, Congress isn’t likely to amend the Sherman Antitrust Act to spell out which levels of antitrust crime warrant criminal prosecution, and thus possible wiretapping, says Donald Klawiter, the chairman of American Bar Association’s antitrust section.

But Klawiter, a partner and antitrust expert in the Washington office of Morgan, Lewis, and Bockius, would like to see lawmakers clarify their position. Perhaps Congress could do that by staging floor debates that would enter the Congressional Record or by issuing a report on legislative history that clarifies how Sherman Act cases have been prosecuted over the past 30 years. In that way, there would be a written record to help courts interpret Congressional intent.

For about three decades, prosecutors and judges have divided litigation into criminal cases, such as those involving cartel schemes, and civil infractions that include monopolistic activity. Klawiter and other attorneys would like Congress to make it clear that lesser antitrust crimes don’t justify wiretapping.